The UK Queen's Bench Division of the Commercial Court has denied applications to vacate prior judgments in an action brought by a reinsured against several defendants which served as reinsurance intermediaries under two binders involving short tail property and contingency risks and personal accident risks. Prior liability judgments had found that the intermediary group had fraudulently abused the binders by placing risks through the binders which were not authorized, and by signing an addenda to the binders, without authority, that provided the intermediaries an extra 40% commission on the first 12 months gross premium. Prior judgments had rescinded the binders and awarded damages for fraud and conspiracy totaling approximately £17,000,000. The opinion holds that liability judgments against several of the defendants were proper. R & V Versicherung AG v. Risk Insurance and Reinsurance Solutions SA, [2007] EWHC 79 (Comm. Jan. 29, 2007).
Arbitration / Court Decisions
Broker Not Liable for Contingent Expenses Resulting from Insurer’s Downgraded Financial Rating
Aon Risk is a commercial insurance broker that served as the broker of record for Synagro, a Texas-based waste management company. Aon Risk obtained insurance from Reliance National Indemnity Company for Synagro in 1998 and 1999. Synagro filed suit against Aon Risk in 2001, asserting that Aon was responsible for contingent expenses that Synagro might incur as a result of Reliance’s downgraded financial rating and its liquidation. A jury found that Aon Risk was not responsible for Synagro’s alleged damages, and a judgment was entered in favor of Aon.
Aon Risk filed a counterclaim against Synagro seeking payment for the cost of the insurance plus its commission. A Texas Court of Appeals recently affirmed an award of $316,000 to Aon Risk, finding that there was sufficient evidence for a jury to conclude that Synagro breached its contract with Aon Risk. Synagro of Texas-CDR v. Aon Risk Services, Case No. 13-04-663 (Tex. Ct. App. Jan. 4, 2007).
Court defers to AAA’s decision as to finality of arbitration award
In a non-reinsurance arbitration under the auspices of the American Arbitration Association, a three member panel signed an award, which the AAA found was not final due to continuing discussions among the members of the panel. Three days later, the panel issued a final award, which the AAA sent to the parties. A dispute arose as to which award should be confirmed. The District Court respected the authority of the AAA to determine the finality of awards, and confirmed the latter award. The US Court of Appeals for the Second Circuit affirmed. The Courts also rejected a contention that the latter award was in manifest disregard of law. Appel Corp. v. Katz, Case No. 02-8879 (2nd Cir. Feb. 2, 2007).
Court defers to AAA's decision as to finality of arbitration award
In a non-reinsurance arbitration under the auspices of the American Arbitration Association, a three member panel signed an award, which the AAA found was not final due to continuing discussions among the members of the panel. Three days later, the panel issued a final award, which the AAA sent to the parties. A dispute arose as to which award should be confirmed. The District Court respected the authority of the AAA to determine the finality of awards, and confirmed the latter award. The US Court of Appeals for the Second Circuit affirmed. The Courts also rejected a contention that the latter award was in manifest disregard of law. Appel Corp. v. Katz, Case No. 02-8879 (2nd Cir. Feb. 2, 2007).
Rulings with respect to indictment relating to allegedly fraudulent reinsurance transaction
A US District Court has denied motions to dismiss an indictment of six former officers of General Reinsurance Corp. and American International Group, which alleged that the two companies engaged in a fraudulent reinsurance transaction, which had the effect of boosting AIG's loss reserve for the fourth quarter of 2000 by $250 million, and by $250 in the first quarter of 2001. The transaction was allegedly entered into shortly after AIG reported that its year 2000 third quarter loss reserves declined $59 million from the previous quarter, after which AIG's stock price decreased. United States v. Ferguson, Case No. 3:06CR137 (D. Conn. Jan. 24, 2007). The decision disposed of ten different motions, which attacked the indictment and sought discovery.